Buying a home is often considered a wise investment. 81% of Americans believe that housing is the best long-term investment they can make. However, to get a good return on that investment, everything from the roof to the foundation has to stay in good working condition. And it’s not just the house itself, but also the contents inside. Some of the most important and expensive items are actually the home systems and appliances.
Most of us might have heard of home insurance (also called homeowners insurance). It is common to think it will cover everything related to the home. Unfortunately, this is not true. This article will detail the differences.
The cost of repairing and replacing appliances can quickly add up when you are a homeowner. A home warranty can save you money and time and provide you with peace of mind. The effort you put in now towards saving costs can help you manage risk and save money in the long term. Learn everything you need to know about the home warranty policy in this ultimate guide to home warranties. This guide offers details on:
- The definition of home warranty (also referred to as home appliance insurance),
- How it differs from home insurance,
- How it differs from protection (also referred to as warranty) provided by the appliance manufacturer,
- The claims process for a home warranty,
- What is covered under home warranty,
- What is not covered under home warranty,
- The cost involved,
- A set of questions to assist in selecting a warranty provider, and,
- A FAQ section.
What is a home warranty?
A home warranty is sometimes referred to as a home appliance insurance plan, a home appliance protection plan, or a home warranty insurance plan. No matter which name you hear it called, it is still a maintenance contract or protection plan that protects the appliances and systems in a home against normal usage and wear-and-tear.
The difference between a home warranty and home insurance
A home warranty covers repair or replacement for failed home systems and appliances. It will not replace appliances that are stolen or lost due to a catastrophe. On the other hand, home insurance covers your home, other buildings on your property, and your personal property itself (including appliances) against loss due to natural hazards and theft. While they each serve different purposes, having both will protect your home and appliances in most situations. Need home insurance? Here’s how to find the best company.
Is the manufacturer’s appliance protection worth it?
All appliances come with some protection given by the manufacturer, so why buy additional insurance? Let’s look at this appliance insurance.
Appliance insurance provided by the manufacturer is of two types, generally referred to as appliance warranty and extended warranty.
Manufacturer’s appliance warranty vs. extended warranty
A manufacturer’s warranty provides coverage for the replacement or repair of new appliances. Typically this warranty lasts from a few months to about one year.
Appliance companies also offer extended warranties to consumers, although they can be bought from a third party as well. An extended warranty is also known as a service contract, while some refer to these warranties as service plans. Whatever the name used to refer to it, extended warranties extend the manufacturer’s warranty for a period of time after purchase.
Extended warranties are required to be purchased before the appliance warranty terminates. Consumers can choose to buy an extended warranty on most appliances such as a washing machine, water heater, or a washer and dryer, and others. Appliance warranty and extended warranty offer a level of protection to the consumer. Now, the question is, is this not enough? Are the appliance warranties and extended warranties not sufficient protection?
According to Consumer Reports, only a small percentage of appliances need repair within the first five years. Data shows 40% of new refrigerators will need repair within their first five years of use. That percentage gets even smaller for other categories—for example, it’s 30% for dishwashers and 20% for clothes dryers. Warranty companies provide this appliance insurance because they know that you will not actually need to use it in most cases. On the subject of the extended warranty, according to Allied Market Research, the global extended warranty market was valued at $120.79 billion in 2019 and is projected to reach $169.82 billion by 2027. These appliance warranties are a moneymaker for retailers.
How to compare appliance warranties and extended warranties?
It is important to bear in mind that appliance warranties and extended warranties cover the home appliance only for a certain period of time when it is new or relatively new. However, repair and replacement are required more for when the appliance gets older. Extended warranties fall short here. Moreover, warranties and extended warranties are offered per product. Most modern homes will have more than a dozen appliances. So managing the warranties for each, not to mention their extended warranties, can make buying a home or managing one a nightmare.
The bottom line is that a home warranty covers all of your appliances in one plan. It is easier to manage and will extend beyond any other warranties. It will prove to be invaluable as appliances and systems approach their end of life.
The biggest benefit of home warranties is the potential to save cost on appliance and system maintenance. You pay a relatively small annual fee and can easily keep everything in working order. You won’t have to worry about large out-of-pocket expenses when something breaks down unexpectedly, which can help provide homeowners with peace of mind. Additionally, if you decide to sell your home, the home warranty plan will add value, enticing buyers. This, in itself, can make the home warranties worth it.
How do home warranty claims work?
If you have a problem with a covered appliance, you will contact your company to file a claim. Once the claim is processed, the company will schedule an approved contractor/technician to check on the problem. A service fee (deductible) is paid at this point.
The contractor will decide which solution is best for the appliance, whether that be a repair or a replacement. Once resolved, you can get back to normal life, and your coverage will continue.
What do home warranty plans cover?
So what does a home warranty commonly cover? It covers all home appliances, including kitchen appliances and others, but are not limited to:
- Smoke detectors
- Hot and cold water dispensers
- Air conditioning
- Water heater
- Garbage disposal
- Central vacuums
- Music systems
- DVD players
- Ceiling fans
- Microwaves (built-in)
- Clothes washer and dryer
- Ice makers (free-standing)
- Trash compactors
- Water Heater
- Air conditioner
- Garage door openers
- Food processors (built-in)
You can opt for the blanket coverage if you have many of the systems and/or appliances included in the warranty plan. Or, if you only need coverage for a few items, you can build your own warranty plan and potentially save. You would be wise to ensure each of your home appliances and systems is covered for home appliance insurance under the warranty you buy. Many companies will offer a combo plan offering various combinations.
Common exclusions for home warranty coverage
What’s not covered by a home warranty? It will differ with each company, but here are some examples:
- Accidental damage and theft.
- Appliances or systems that exceed age or value limits.
- Select brands.
- The cost of parts.
- Pools and hot tubs, well pumps, septic pumps, and guest units.
- No-claim periods might exist where you aren’t covered for the first few days or weeks of a policy.
- Pre-existing issues.
- Unusual wear and tear.
- Code violations.
- Work where permits are needed.
- Improper maintenance or installation.
Be sure to read the fine print before choosing a plan so that your claim isn’t rejected unexpectedly. Further, read company reviews to determine if there are any recurring complaints about denied claims or other issues.
Are home warranties worth the money?
On the subject of value for money, we have to answer, ‘What is the average cost of home warranty plans?’. Shawna Bell of Landmark Home Warranty says “that annual premiums range from $300 to $600, on average. Deductibles (aka service call fees) are usually around $50 to $60.”
To find out if a home warranty makes sense for you, take an inventory of the appliances you have in your home. Figure out their estimated lifespan and estimate how much it will cost to repair or replace them.
Here’s a quick guide to the average appliance repair and replacement costs in the U.S., according to Home Advisor and Angie’s List..
Additionally, here is the average lifespan of various appliances, according to the National Association of Home Builders:
If you can save significantly by paying the annual fee and deductibles (when applicable), it makes sense to sign up for a home warranty plan. Alternatively, you can stick with the basic manufacturer warranty and pay out-of-pocket each time you need a repair or replacement.
On the subject of whether home warranties make sense for you. Run the numbers to see if it is the best solution for your specific situation.
20 key things to look for in a home warranty provider
When buying a home or investing in one, carefully consider the cost for each item required. Some effort now goes a long way in saving cost and effort in the years to come. If you decide a home warranty plan is right for you, the next step is to find the right home warranty provider.
When shopping around home warranty companies, be sure to consider the following factors:
- Is the home warranty company licensed, bonded, and insured?
- What is the home warranty policy coverage details and restrictions?
- In case the home warranty provider offers warranty plans, e.g., Basic Coverage Plan, Extended Coverage Plan, Combo Plan. What is included in each of these?
- What does the plan exclude?
- Does the home warranty company have a good reputation (read home appliance insurance reviews)?
- What are the company’s hours? Do they have an emergency 24/7 service?
- What is the cost (one-year premium and deductible)?
- What are the terms for payment of premiums? Do they accept credit cards?
- What is the policy for the repair or replacement of appliances?
- Are there limits on how many service calls you can make?
- What are the service call fees?
- Will they cover 100% of the repair or replacement? Are there caps?
- Are there service fees in addition to deductibles?
- What is the claim process?
- Do you have to work with a third-party or another external service provider?
- Do you have to use the company’s network of providers?
- Is there a waiting period before you gain coverage?
- How long does it take for a service visit?
- Does the company offer any discounts?
- Are there any promotional or other offers?
FAQ on Home Warranty
Is a home warranty plan the same as home insurance?
No, while both are great protections, home insurance and home warranties offer different protection types. Purchasing both home warranty and home insurance will cover your home, possessions, appliances, and systems if they need repair or replacement.
Is a home warranty the same as home appliance insurance?
Yes, some prefer to use the term, home appliance insurance. A home warranty is also referred to as home appliance protection or home warranty insurance.
Do I need appliance insurance?
It depends on your risk tolerance, your cash flow, your personality, and the cost of your appliances. Also, it depends on the type of appliance insurance you are considering.
All home systems will experience some form of wear and tear as the age of the appliance progresses. Most appliances come with manufacturer’s appliance warranties and also offer extended warranty. These warranties usually apply when the appliance is new or relatively new. However, appliance insurance is more required when the appliance gets older and approaches its end of life. Modern homes have a number of these appliances, and managing appliance warranty and extended warranty for every appliance can become a job by itself. A home warranty offers a good solution to the above issues, in that it covers all your appliances in one plan. It is easier to manage and will extend beyond any other warranties.
What does a home warranty include?
A home warranty will typically cover most major appliances and systems in the home, such as your HVAC (central heating ventilation air condition), water heaters, plumbing, electrical, and more. It may also cover regular appliances such as washers, dryers, refrigerators, and stoves.
Can you purchase a home warranty after closing?
You can purchase it through a real estate transaction and receive a discount if purchased within 30 days of closing. Homeowners who purchase a home warranty as a protection plan for their appliances and systems could save money in the long-term.
How do I select a home warranty provider?
The market offers several home warranty companies. This article offers a set of questions you can use to compare home warranty companies that will help you save cost.
So how much should I pay for a home warranty?
For basic home warranty coverage, plans average from $350 to $600 per year. For extended home warranty coverage, add around $100 to $500 per year, depending on the number and types of appliance or system items added.
Overall, you want to ensure the warranty company can protect your appliances and systems at an affordable price. Further, customer service is critical; look at their service contract, service call fees, service call response time, etc. There are many companies in the market. So it pays to invest some time researching them and looking for companies with a good reputation who care about their customers.
Remember that a home warranty plan doesn’t cover damage or loss due to theft or natural disasters. That falls under home insurance or homeowners insurance policies.
If you need home insurance, browse and compare leading providers for home insurance here.
Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.